Commissioning the second season of a television series in advance of the airing of a season one premiere is the latest in a slew of industry-altering decisions made by Netflix (NFLX), turning ripples into waves throughout media and investor communities. Netflix has emerged from a somewhat troubled startup to become the unconventional bellwether for what is to come in the digital media world. In fact, I'd go so far as to draw parallels between Netflix Inc. and Apple Inc.
When the public's appetite for the video store rental model began showing signs of fatigue, Netflix emerged as an alternative by offering DVDs and Blu-ray discs through a monthly subscription. For one price, you'd get to pick from a catalogue of movies that would be mailed to your door, complete with return envelope for when you were done, no time limits, no late penalties. As with other business models that buck conventional wisdom and "me-too thinking," critics were plenty; however, they were quieted down when in February, 2007 the company reported its billionth DVD delivery.
While critics were busy reporting what was wrong with the model, Netflix was planning its next evolution: on-demand digital subscription service for movies and television programming. Like Apple, Netflix didn't see limits to its model, nor would its growth strategy be dictated by conventional business practices. Why limit yourself to renting licensed material when you can capture greater wallet share by producing and streaming your own content?
Netflix was never really a video rental business. It was a media channel and, in its own eyes, no different than any network or cable channel.
It wasn't long before original content was being produced and distributed to compete with other traditional entertainment channels. Yet even here Netflix understood that the manner in which people consumed episodic programming was different. When Netflix picked up the rights to exclusively produce and broadcast a new season of the network-canceled show Arrested Development, it decided to release the entire season on the same day, at the same time.
It quickly followed suit with a growing list of original programming such as Lilyhammer, The Problem Solverz, and the critically acclaimed House of Cards, in each case releasing entire seasons at one time. Social networks were buzzing with marathon "screening parties," which gathered friends online and in-person over a weekend to watch (or re-watch) an entire season in one sitting.
Ignoring Current Trends
If I told television executives in charge of programming just 16 months ago that it was a "best practice" to release full seasons at one time and offer renewals to series before the first episode aired, I'd have been laughed out of Hollywood, or their money-guys would have had me shot. Yet here we are and Netflix's prospects -- and stock price -- are soaring. Its investment in original programming is also on the rise; $100 million was offered to out-bid HBO and AMC for House of Cards and Arrested Development was re-introduced to loyal fans for millions more.
Not every series Netflix has produced is a critical hit. Hemlock Grove, the story of teens coming to grips with their role in a series of supernatural occurrences in their small town, was panned by most critics and, according to unconfirmed reports, watched by very few people. Despite the poor reviews, a second season was announced. Traditional network executives would tell you that if Nielsen reports strong viewership, the show is renewed. But there's the rub; Netflix doesn't report viewer numbers like traditional networks do.
What's also interesting to note is that network and cable channels often commission a pilot and maybe one to three episodes to test the waters before committing to a full season. Netflix is committing to full seasons and, more recently, second seasons before the series even airs! What does it know that other broadcast executives and media pundits don't?
Like Apple, Netflix does not take its cue from current trends, but from the trend currents. It predicts the changing patterns in how people interact with television content and, using the data captured from its current 29 million subscribers, proactively fulfils that need.
Netflix knows what critics don't: what content that legions of teen horror fans wish to view, in what format, and at what frequency. It knew House of Cards would be a hit based on patterns detected through clicks and viewership and cross-referenced to celebrities, directors, and producers. Emboldened, it made the decision to approve a second season of Orange is the New Black ahead of the first season's airing. So does it matter that critics panned Hemlock Grove? No. Data is driving Netflix's programming, not reviews. It's isn't trying to be the best player at the game; it's changing the rules of the game.
What are your thoughts? Is Netflix the next Apple? Share your arguments -- pro and con -- in the comments below.
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